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Gold/Mining/Energy : Lundin Oil (LOILY, LOILB Sweden)

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To: Tomas who wrote (1099)	5/24/1999 10:32:00 AM
From: Tomas	Read Replies (1) of 2742

Morgan Stanley: We are upgrading our rating on Lundin Oil to strong buy from neutral after the company announced a major oil discovery in Sudan which could potentially be worth up to SKr 20 per share. As a result of the discovery we are increasing our asset value estimate to SKr41 per share from SKr21 per share. We are leaving our earnings and cash flow estimates unchanged, since first production from the area is at least four years away. KEY POINTS Lundin Oil, the Swedish exploration and production company, has been involved in the discovery of a major new oil discovery in the Sudan. The company has a 40% interest in the Thar Jath well that was drilled on a structure with estimated recoverable oil in excess of 300 million barrels of oil. If the reserves in the field are as high as initial expectations the discovery would almost double Lundin Oil's existing oil reserves base of 129 million barrels. The Thar Jath well was drilled in Block 5A in southern Sudan adjacent to a block which contains over 800 million barrels of discovered and developed oil that is due to come on stream later this year. The discovery could be easily tied back to the facilities in the adjacent block with crude exported to the coast at Port Sudan through a pipeline that is now almost complete and which has been designed to accept up to 100,000 bbl/d for third-party users. The Thar Jath discovery is one of the largest structures in the block and substantial net pay has been logged in intervals comparable those currently being developed by Talisman nearby. Samples obtained from the well, drilled at no cost by OMV (who earn a 26% interest) are of good quality light oil with minor amounts of gas. Lundin has been unable to test the interval prior to the rainy season and the well has been suspended awaiting testing later in the year. There is therefore still an element of risk that it may not flow oil at commercial rates despite the similarity with nearby flowing wells. At this point in time it is very difficult to accurately predict the volume of oil discovered. However, in the event that the prospect contains 250 million barrels, can be brought on stream in 2004 with peak production of 75,000 barrels per day we estimate that it could be worth up to SKr20 per share to Lundin Oil. Our evaluation assumes a development cost of $3/bbl, operating cost of $2/bbl and a pipeline tariff of $5/bbl. Morgan Stanley Dean Witter May 21

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